Unpaid internships: A scourge on the labor market

I was happy to see the New York Times‘ online debate about unpaid internships, sparked by the latest lawsuit against a major corporation for exploiting an unpaid workforce. A recent graduate of Ohio State University, Ms. Xuedan Wang, is suing the Hearst Corporation for its failure to pay her during four months of work at Harper’s Bazaar, work that allegedly included directing the work of other interns, in addition to record-keeping and overseeing the pick-up and delivery of fashion samples.

As Steven Greenhouse reported in April 2010, it has become common for profit-making businesses to ignore the minimum wage and overtime laws and employ young workers without compensating them and, as Ms. Wang’s lawyers point out, without paying Social Security taxes, unemployment taxes, or worker’s compensation premiums. This not only deprives the so-called interns of coverage under these important programs, it deprives the trust funds of needed revenue. Four months of minimum wage work would cost a New York employer more than $400 in payroll taxes and several hundred dollars in worker’s compensation premiums.

Despite the magnitude of the tax losses nationwide, few state governments have tackled these illegal unpaid internships, and the federal government has failed to litigate a single enforcement case, although it might have settled enforcement actions without litigation or publicity. Given the hostile budgetary and oversight environment in Congress, I suspect the Labor Department has decided to avoid taking on the corporate interests that profit from this tax avoidance and unpaid labor. The chronically underfunded Wage and Hour Division still does not have a Senate-confirmed administrator, and the Republican members of the House Education and the Workforce Committee have made it clear that they frown on zealous enforcement of the law.

An earlier lawsuit against Fox Searchlight, another profit-making enterprise that exploited unpaid interns while making the movie Black Swan, reveals just how pernicious this practice really is. One plaintiff was a 2009 Wesleyan University graduate, but another was a 42-year old accountant with an MBA. The lesson? Once businesses get away with exploiting young people, it isn’t long before they treat older workers just as badly.

I first saw signs that the unpaid internship had slid far down the greasy slope when the Times and Wall Street Journal reported several years ago that adult dislocated workers, 30-somethings who had held jobs for many years, were reduced to doing significant, skilled work for free as “interns” in for-profit businesses while surviving on unemployment insurance. Everything was wrong with this: there was no educational component, the “interns” worked for several months without pay, and the employers escaped all of their normal obligations to pay wages and taxes.

Back in 2006, Anya Kamenetz nicely summarized the key ways that unpaid internships damage the labor market and the ability of the 99 percent to earn a decent living. They undermine the meritocracy that allocates jobs and rewards people for their skills and gumption rather than for the wealth of their parents; they depress wages by creating an oversupply of people willing to work not just for low wages, but literally for nothing; they depress expectations and create an over-identification with employers; and – as compared with paid internships — they damage the career prospects of the young people who take them. More recently, Kamenetz argued that the responsible institutions need to drag the unpaid internship mess out of the shadows and clean it up: “It’s time for employers, in cooperation with the government and colleges, to step up and create higher-quality apprenticeships, paid jobs, and co-op programs to replace the ill-defined, unpaid internship.” Given that many colleges and universities reportedly require students to take an internship before graduation, they do bear some moral responsibility for the educational content and legality of the experience. Apparently, however, they will be reluctant partners in this effort. When the Labor Department issued guidance on the six principles for a legal unpaid internship, a group of university presidents fired off a protest letter to Secretary Hilda Solis. The universities have a cozy deal collecting tuition for semesters in which their students get farmed out as free labor to employers, and they don’t want the government to interfere, no matter what the law requires.

Kamenetz suggests another approach would be for corporations or the government to fund paid internships for low-income students, as proposed by EPI researchers Kathryn Edwards and Alexander Hertel-Fernandez. Because governments can legally accept volunteer labor, it is common for legislators and executive branch offices to employ unpaid interns, who do everything from sorting mail and making coffee to writing research reports, preparing presentations and answering constituent mail. These internships might open doors to political jobs and are, at least, resume-builders, but they are less available to poor kids whose parents can’t afford to house them and feed them while they work for nothing. Unpaid internships might be one more obstacle to social and economic mobility. Means-tested stipends would even the playing field (as would simply paying for the work the interns do).

The good news, ironically, is that unpaid internships apparently do very little for the job prospects of the students who take them. In 2011, the National Association of Colleges and Employers, which conducts an annual survey of graduating seniors, made an attempt for the first time to measure the effectiveness of various internships—for-profit, non-profit, state or local government, and federal—by whether they were paid or unpaid. Unpaid internships, it turns out, provided no advantage in terms of full-time job offer rates or starting salary, while paid internships provided a substantial advantage. In fact, unpaid internships in government proved to be a disadvantage in terms of job offers and in every category were a serious disadvantage in terms of starting salary. The average student who had taken an unpaid internship in a for-profit firm earned $18,000 less than students with paid internships and $3,700 less than the average student who had never taken an internship. Students who had had paid internships in the federal government received salary offers averaging $48,668; their colleagues with unpaid federal internships were offered only $33,127, on average.

Unpaid work is exploitation. It is illegal, and colleges and universities should reexamine their role in promoting it. And as Ross Perlin, the author of Intern Nation bluntly puts it, “It’s time to enforce the law.”

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EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.